Making Tax Digital (MTD) is a Government scheme designed to simplify the way businesses and traders pay tax. One of its aims is to end the system of self-assessment and paper-based tax filing. The Government hopes MTD will make tax management more efficient, effective and easy. It’s also hoped it will cut HMRC’s administration costs.
Who is affected by Making Tax Digital?
A wide range of taxpayers has been affected by the new scheme. That includes businesses, the self-employed and landlords. Under the new regime, most business owners will need to maintain digital records via the use of MTD-compatible software. Making Tax Digital is entering into force gradually, and not everyone is yet required to comply. There are still worries that a large number of eligible taxpayers don’t know what their obligations are, which is why attempts are still being made to raise awareness around the topic.
Who is already under the scope of Making Tax Digital?
Soon, everyone affected by MTD will be instructed to send financial information to HMRC at least four times a year. They will need to either do this via MTD-compliant software or an app. You won’t need to complete a tax return four times a year, but you will need to provide updates on your current financial position every three months. The new changes have affected VAT payers first, and they have submitted the required details since April 2019. However, it will be rolled out to other income and corporation taxpayers.
Software versus spreadsheets
If you are still using spreadsheets to manage tax and accounts, these must be compatible with your digital tax ones. However, more and more individuals and companies are opting to use software rather than spreadsheets in order to enjoy greater clarity and efficiency. One of the main purposes of MTD is to ensure information can be updated in real-time, or “as close to real time as possible” according to HMRC. A key benefit is that it can reduce errors while helping you stay on top of the amount of tax you owe. You will no longer need to wait for months for a bill.
Am I eligible for Making Tax Digital?
Not every business is eligible for MTD. If your turnover is below £10,000 you will be exempt, though you can participate if you feel it will be beneficial. The first year of MTD for VAT has been described as a ‘soft-landing period’ by HMRC. That means companies should be putting digital links in place so every part of their compatible software can communicate with their online accounts. In Spring 2019, the Government said HMRC was adopting a ‘light touch’ approach when dealing with late filing and errors providing businesses were trying their hardest to stick to the regulations. That means you could face penalties if it is judged you haven’t done your best to comply. You could also be penalised for paying a VAT bill late. If a payment deadline is missed, you may need to pay an additional surcharge.
Can I be penalised for failing to comply with Making Tax Digital?
From 2020, a new MTD for VAT penalty points system will be introduced. It will work similarly to measures in place previously for late income and corporation tax payments. If a VAT return is missed, you will be allocated a penalty point. Once that total rises to four, a fine follows. Penalty points on a record expire after two years.
Is Making Tax Digital popular?
Although some may find MTD daunting, it hasn’t turned out to be as unpopular as you might think. In one survey, more than half of those asked said they were happy with the new way of doing things and only 11 per cent of small businesses had a negative attitude towards it. However, 84 per cent of respondents did say the Government should have provided more information before introducing it.
Is the software easy to use?
Although you may feel comfortable using spreadsheets, most people are much happier with accounting software once they start to use it, finding it more efficient and useful. Accounting software can give you far greater clarity on your current financial situation while making it easier to plan ahead and make crucial business decisions. Figures from MarketWatch said that around 88 per cent of spreadsheets contain errors, which is yet another reason to embrace MTD-compliant accountancy software if you aren’t doing so.
Are HMRC providing the software?
Despite what you may have expected, HMRC are not providing their own software for MTD. Instead, you will need to seek software that is compliant. At One Click, we can give you access to MTD compliant software alongside the services of experienced accountants that know the latest legislation inside out. We already have vast experience of the new MTD initiative and can provide the service you need to remain fully compliant and on top of your tax and accountancy obligations. Even if you aren’t required to use MTD for VAT now, it is set to affect the way that you pay income and corporation tax soon, so it is wise to start using compatible software if you aren’t already. You won’t need to keep additional records after falling under the scope of MTD, and you can benefit substantially once you have got used to the new software.
OneClick can help with Making Tax Digital
Talk to us if you’re ready to learn more about the benefits of MTD and MTD-compliant software. It ensures many tasks related to your finances are automated, including invoice chasing which can be incredibly time-consuming and frustrating. You can also use the software to file a self-assessment tax return. We help make the change to MTD a hassle-free one, so contact us today to find out more.